SOUTH AFRICA – Load shedding in South Africa has cast a long shadow on South Africa’s food industry, adversely impacting operations and resulting in losses of untold proportions.
Astral Foods, one of the leading poultry producers in the country, says it expects a 90% plunge in mid-year profits as it had to cut back on at least 12 million broiler placements for the six months ending March 31st.
The company’s decision has a reverberating effect on the entire poultry industry as Astral Food processes nearly 6 million chickens in one week, accounting for a quarter of the nation’s broiler meat production.
The energy crisis is caused by Eskom, the public power supply utility, inability to supply adequate electricity to businesses and households who now have to go through power outages of 10 hours long in the name of load-shedding.
Astral Foods has had to incur abnormal additional costs due to a backlog in the broiler slaughter program which in turn results to the heavier birds that were scheduled for slaughter consuming higher levels of feed that were not allocated to them in the first place.
These erratic electricity supplies affect the entire poultry processing and supply value chain as other additional shifts are being implemented to try and address the significant backlog.
Poultry prices will eventually inevitably increase to recover the high feed input costs among other costs.
The CEO of the company, Chris Schutte, said that with regard to the current market and operational conditions, the cost of chicken production exceeds the selling price by at least R2 per kilogram (US$0.12/kg)
The company reported that feed input makes up 70% of the cost of producing a live broiler.
He added that his company expects to incur significant losses for the first half of the financial year in addition to the 90% drop in its earnings per share (EPS) as compared to the R14.56 eps posted for the six months ended in march 31st 2022.
The company however tries to limit load shedding impact by utilizing the available spare capacity among its various feed mills. This nonetheless comes at an additional cost.
This energy crisis has prompted Astral Foods to embark on numerous additional capital projects that include the installation of diesel generators and water storage at its facilities while putting other projects on hold as the current unfavourable market conditions persist.
The company anticipates the load shedding to cost it a good R400 million(US$23,369,819) for the first half of the 2023 financial year.
If the conditions worsen the company projects to have to resize its business in the short term, resulting in a loss of jobs throughout the supply chain.
“The shameless demise of a number of State-owned entities that are responsible for supplying essential services and maintaining general infrastructure, is impacting business sentiment and reinvestment decisions for growth,” says Schutte. “This directly threatens the nation’s food security.”
For all the latest food industry news from Africa and the World, subscribe to our NEWSLETTER, follow us on Twitter and LinkedIn, like us on Facebook and subscribe to our YouTube channel.